Obama hails Senate deal on loan rates for college students

Thursday

Jul 25, 2013 at 12:01 AMJul 25, 2013 at 10:17 AM

WASHINGTON - The Senate last night overwhelmingly approved a compromise measure that would lower interest costs on student loans in the near future, but critics object that the bill does not permanently guarantee that interest rates won't dramatically rise in a few years.

WASHINGTON — The Senate last night overwhelmingly approved a compromise measure that would lower interest costs on student loans in the near future, but critics object that the bill does not permanently guarantee that interest rates won’t dramatically rise in a few years.

By a vote of 81-18, the Senate sent the bill to the Republican-controlled House, where it is expected to easily win approval next week. In a break for students, the compromise cancels a doubling of the interest rate on subsidized Stafford student loans that went into effect on July 1.

The new interest rate would be 3.86 percent under the bill.

President Barack Obama hailed passage of the bill, which he said in a statement would save “ undergraduates an average of more than $1,500 on loans they take out this year.”

Obama added that he hopes “both parties build on this progress by taking even more steps to bring down soaring costs and keep a good education — a cornerstone of what it means to be middle class — within reach for working families.”

House Speaker John Boehner, R-West Chester, called the compromise “a permanent, market-based solution on student loans. This bipartisan agreement is a victory for students, for parents and for our economy.”

The compromise, sponsored by Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, would link student-loan interest rates to the market rate for the 10-year Treasury note.

Once a student takes out a loan, the interest rate would be fixed for the life of the loan and capped at 8.25 percent for undergraduate students and 9.5 percent for graduate students.

According to a White House news release, “a typical undergraduate borrower in Ohio who borrows $6,747 will save about $1,507 over the life of those loans” under the Senate compromise.

But critics, including Brown, warned that while the compromise might benefit students this year, it would lead to a sharp increase in interest rates later. Some Democrats had pushed for a cap of 6.8 percent, based on projections that undergraduate interest rates could reach the 8.25 percent cap as early as 2017.

The House’s version, approved in May, would have allowed rates to fluctuate with the market. Critics argued that would have created uncertainty for students taking out loans.